Weekly market outlook, July 10-14th: $5 corn is the top with more than 10% stocks to use

Paul

Neiffer: Thank you for listening to the Weekly Market Outlook. It is our pleasure to bring an industry-leading market analyst to provide you with the most value possible in your farm business. Please reach out anytime by emailing cbarron@agviewsolutions.com. Welcome everyone to the Ag View Pitch, uh, the weekend market report. Uh, As you can tell, this is not Chris Barron, this is Paul Niefer. I'm just helping out because Chris is on the road. And today we actually have Clark Nabors from BIS Commodities that's going to join the call. How are things going, Clark?

Clark

Neighbors: Good, Paul. Out here in Cedar Rapids, Iowa, kind of cloudy today, hoping for a little shower, which would be beneficial, but, uh, things are going well.

Paul

Neiffer: Well, based here in Colorado, I could certainly send some rain your way. We got about another quarter-inch last night. We had, uh, well, the Colorado Rockies baseball field on, I think it was Sunday, got hailed out. So, uh, uh, you know, it's, it's, it's been a quirky weather, uh, situation here.

Clark

Neighbors: Yeah, I saw in the news actually that, uh, the National Weather Service says the entire state of Colorado is not in a drought for only the second time in the last 23 years.

Paul

Neiffer: So yeah, yeah, I can verify that. So, uh, Let's go ahead and talk about markets. You know, the last, what, 3 weeks, 4 weeks, we've seen corn go from a little bit less than $5— I'm talking December corn— a little less than $5 up to $6.30, and then all the way back to a little bit less than $5. So what, what's your thoughts on corn and soybeans right now?

Clark

Neighbors: Well, your points well taken. Uh, first on corn, corn, you know, we, uh, it's kind of mid to late May, market was down this, give or take, this $5 region on December corn. And the market then took a nice firming action, uh, into late May, early June, mainly on weather concerns at that time, uh, yield concerns at that time, and topped out, it looks like in that $6.30 area as you mentioned. I think it was around the 20th or 21st of June off the top of my head, and then about 7 trading days emphasizing the, uh, the stocks report on the 30th took that entire, uh, corn rally back away.

Um, so the corn market, or the market in general I should say, Even with still some areas with some dry situations and dry pockets, and they're going to need some additional rain going forward, which isn't any different than any other year to some degree, uh, seems to be way more comfortable with the supply situation than even a week ago. Uh, and a lot of that, Paul, is attributed to the increase in corn acres in the report a week ago. Of 2 million acres, and that takes a lot of pressure off of the, uh, yield going forward. Uh, on the demand side of corn, uh, exports have been disappointing, uh, continue to be. China's at about half pace of what they were a year ago. Uh, year to date, the U.S. is down 35% on corn exports. The S&D currently has us down 30% for the year on an estimate, so We could in upcoming S&D reports possibly see the export number actually come down a little bit again.

So the demand side overseas has been concerning on corn. On the other side though, the domestic market's been very hot this year from a cash market or basis standpoint. The tail wagging the dog in that whole area is kind of out your direction. You out in the Western Plains, the tightness of stocks due to the drought that used to be there, caused some tremendous pull of Midwest rail going to those sections, trying to fill that need, that hole. And as we approach, you know, wheat harvest and U.S. corn harvest to the west, that, that situation seems to be abating to some degree, but you still have regions in the Midwest that still have fairly strong corn basis for this time of year.

Soybeans— so bottom line on corn, I think unless we see some weather concerns in the next few weeks, corn market's probably had its situation where selling opportunity or the better selling opportunities are probably behind us for a while till we get, you know, into a demand situation going forward. Soybeans, on the other hand, similar pattern as we talked about on the corn, but we kind of had a head fake a week ago with the, with the planted acreage report being a huge surprise with 4 million less acres of beans for the upcoming crop, and all of a sudden that totally changes the, the carryout scenario on beans from a fairly comfortable carryout to one that's extremely tight. And the bean market had a sharp increase last Friday. We've held most of that together here this week, even though we're— we've backed off of some of the highs here from earlier in the week.

But the job of the bean market now is to ration demand, and that's what it was trying to do as we— come through that report last week. And so next Wednesday the 12th, USDA will give us a supply and demand update, and that'll be interesting to see how they factor in, you know, the increase in corn acres, the decrease in bean acres, and what that may do to the carryout numbers going forward, Paul.

Paul

Neiffer: I, I guess one question, or observation maybe is the, the better way of saying it is, should we really have been surprised about the acreage report? I mean, everything I heard during spring planting was, you know, I didn't hear any issues almost throughout the Corn Belt as far as getting the crop in. Now, yeah, there was some rain here and there, but I mean, really, should we have been surprised? Because if you went back earlier in the year, you know, the corn— the soybean to corn ratio, or the corn soybean ratio, was really in that low 2s, so it really favored corn. So really, should we have been surprised that, uh, that there was more acres toward corn and less toward beans?

Clark

Neighbors: Great question. Uh, I would answer and say yes and no. Uh, no, when a standpoint you kind of look back and, you know, the reasoning you just mentioned, the stocks-to-use ratio, uh, we had a pretty good, good spring to get the crop in the ground. You always hear the theory that producer likes planting corn over soybeans, etc. So from that standpoint, no, I guess in some ways it shouldn't have been a surprise. I think the reason it was a surprise is I think the market anticipated because of being a good spring, and the assumption would be, you know, farmer is going to keep his ratio pretty similar The trade was estimating the number was going to be really close to the March number because your, uh, your estimates were right on top of what the March, uh, intentions were.

Um, and obviously that didn't happen, especially with the bean number being down 4 million acres, which is— I think historically maybe we've only seen one year where you've seen an acreage change that large on, you know, from one report to the next. So in some ways it was a huge surprise, but in reality, and when you stop and give it common sense, maybe it wasn't. So, but obviously the dynamics, uh, and the market's still trying to figure that out. I think it kind of had a hangover or a little aftershock most of this week trying to figure out where that's going to be as far as that ratio. I mean, some, some analysts, Paul, are even talking about, you know, don't be surprised if the corn to bean ratio goes to 3 to 1 at some point, uh, here this year.

Paul

Neiffer: Well, even though South America, you know, is having an all-time record crop, the— on the demand side, yes, exports are important for beans, but they're not as important as they were maybe 5 or 10 years ago. Is that correct?

Clark

Neighbors: Um, yeah, I mean, I— you know, half your demand for soybeans, give or take, is, is exports. You know, keep in mind corn exports only represent 15 to 20% of total supply. So, um, they're still very important. Uh, domestically we're seeing some growth because of the biofuels and that type of thing. Uh, I think the key is, is we're sending a huge message to the South American farmer to plant more beans this year. Yeah. Coming off this report. So we'll see how they react to that. Keep in mind though, that supply is not ready for the market till next February or March either. So long way to go.

Paul

Neiffer: Yeah, and then I think you've done some work on as far as the— what the price outlook at harvest looks when your stocks-to-use is above 10% for corn. Let's, let's go through that analysis that you've done.

Clark

Neighbors: Sure, so if, if you look back the last— I just went back last 15 years, and if you look at the years where stocks-to-use, which is the stocks as a percentage of what we use for demand each year, If that number is under 10%, which is tight, and those years would be 2022, 2021, '13, '12, '11, and '10. In all 6 of those years when stocks-to-use are under 10%, uh, December corn during harvest, post-harvest, etc., is historically over $5.— and sometimes quite a bit more depending on how tight it is. On the other side of the coin, the other 9 years where stocks use is above 10%, uh, and that right now we're at 15.6% estimate right now for the current crop. That number may get a little bigger, it may get a little smaller, we'll see, but there's quite a bit of buffer there at 15.6%.

There's not one year here in those 9 where you're above $5 at harvest, and it looks like maybe only like one year you're above $4.60 by very much, so— and we're closing, or we're flirting with $5 as we speak on the current year, so most of the time you don't see— you know, those type of values that I'm referring to till you get, say, Labor Day and past. But I think that's something for producers to watch because there's a very strong correlation there in that stocks use above and below $5, if that makes sense. Yes.

Paul

Neiffer: And how much decrease— and you may not know this off the top of your head, but how much decrease in bushels per acre on average to get it down to that 10% level? Are we talking at least 10 bushels, 15 bushels? You know, right now it's a what, 181.5 is trend. You know, everybody thinks, you know, that we're at least 5 below that, but if we got 10 or 15 below, would that get us down under that 10% level?

Clark

Neighbors: So with the increase in acres buffers that a lot. So I would basically say a good rule of thumb, we're going to have to probably, yes, be sub 174. For sure to even flirt with 10% stocks-to-use, maybe even closer to 165. I mean, that number's gonna vary depending on what we do with the demand numbers, obviously. So right now, you know, where's the market trading in yield? I mean, that's just, it depends on the day. I'd say the mid-170s is where most people are plugging in right now. That could change.

The only thing I would add though is, and this is by no means a prediction on yield, but it feels to me in the last 6 months the trade looks at that trendline yield at 181, and granted we haven't grown a crop that big, uh, we've kind of been flat on, on, uh, yield the last 9 or 10 years, kind of in the mid-upper 170s usually.— but the trend is a— is an upward sloping number that theoretically half the years you need to be above, and half the years you need to be below it. And it feels like many in the market, even back in March when we're planting the crop, just felt 181 is the absolute best we can do ever. Um, and I think we need to be kind of careful with that thought process, if that makes sense. And that's just an observation on my part, but it just felt that way. This whole time.

And I, I don't think that number is in jeopardy this year based on the growing season thus far, but we've, uh, we've definitely stabilized the crop immensely in the last 2 weeks throughout most of the Midwest.

Paul

Neiffer: Well, and just look at the increase in acres by states, you know, the increased acres are in Illinois, Iowa, uh, what I think one other state, and those are the states that typically grow the large size crops. So, uh, Yeah, I think there, there definitely probably is some validity to that.

Clark

Neighbors: Yeah, very good point.

Paul

Neiffer: What, um, you know, as you mentioned, you know, the, the corn to soybean price, or the really it's the soybean divided by corn price ratio, do you think it's going to get to 3 for next year, or where do you think we might be at? I know that's doing a little bit of the crystal ball, but based on where we're— everything that you mentioned as far as stocks to use and so on, I, I think easily it probably could approach that number, couldn't it?

Clark

Neighbors: Yeah, I think if you look at Dec corn, this— the new crop corn, December corn versus the current November beans, I think it's about 2.65 to 2.7, just eyeballing it right now. I don't know if that ratio gets to 3 or approaches 3. —some of the other comparable months as you get into the crop year potentially could depending on demand. I've heard several analysts say, you know, that's the kind of number that historically when you get to, that's kind of the top end, the 2.85 to 3 ratio. So I think it bears watching, but there's no doubt the market needs to ration bean demand to some degree, assuming the carryout And it's going to be interesting to see what kind of number the USDA presents on Wednesday, because with that acreage change, keeping the current demand, I mean, that gets carryout super tight already.

There's usually kind of a benchmark number they don't like going below on carryout or stocks to use this early in the year, so you might see some numbers that quote-unquote back off the demand to keep that number in check. But, uh, that's going to be interesting to see what that number is because, uh, it gives us a good basing point going in the latter part of the growing season and once we get into harvest.

Paul

Neiffer: Yeah, and you know, since I'm a CPA and I like looking at numbers, you know, if, if corn's at $5, you know, a 3-to-1 ratio means beans would be at $15. That's pretty tough to get to But if corn's at $4, beans only need to be at $12. That's a much easier number to get to.

Clark

Neighbors: Yeah, correct. And historically, that, that would tie in with that relationship better, I think. Your 3-to-1, assuming that may happen, I would say your latter, your latter prediction is probably more accurate that it's, you know, a low $4 versus a $12, $13 type number versus a $5 and $15. So we'll see, we'll see.

Paul

Neiffer: Is there any floor right now with the fact that a lot of the corn farmers out there have crop insurance at 85%, especially in the, in the larger states, the I states, you know, it's, it's much cheaper to get 85% than it is on the, let's say, the North Dakota or the Missouri or the Kansas. And at 85%, that sort of is a price of about $5.02, $5, $5, let's say. Is that putting a little bit of a floor on there that the producer says, hey, if the price goes below that, I don't need to sell, I'm going to collect crop insurance anyway. Do you think there's a little bit of that mentality out there right now?

Clark

Neighbors: Most definitely. I think the concern is, if I sell here and the market rallies, now I don't collect my crop insurance, and I've sold at a lower value on this. the story or the thought process I think is pretty prevalent out in the country. And because of that, we talked to a fair amount of commercials in the Midwest or country elevators, if you will. And especially prior to that recent rally here 2, 3 weeks ago, the amount of new crop that had been sold in general had been very small, like well less than 5% of the crop.— I think that bumped up with this recent rally to some degree, but it's still well below normal. So I think that's attributing to that a little bit, Paul, is because of the potential of crop insurance, I think that creates a situation where it's hard to pull the trigger on sales right here, right now, because of that scenario.

Now, as that plays out through harvest, depending on what the board does and so on,— you know, basis or the cash markets in certain areas may have to do some of the lifting to move the product away from the producer. So we'll see. I mean, too early to really dig into that hard yet until you have a better feel what the crop is, but long story short, to answer your question, I think the crop insurance is having quite a bit influence on holding off on decisions right now, let's put it that way.

Paul

Neiffer: Yeah. And then part of it too is, you know, say a farmer typically would like to be maybe, you know, 40% sold. Well, the problem is, you know, 2 weeks ago, that 40% might have been 80% if, if, you know, the drought really came on. So I, I think that, you know, if we continue to get some good rains and, and the temperature stays low here for the next 2 or 3 weeks, you know, definitely that mentality is going to shift too.

Clark

Neighbors: Correct, correct, no doubt about it.

Paul

Neiffer: Well, we've, uh, I think we've covered quite a bit here. Is there anything else that you'd like to, uh, any comments, other comments you'd like to wrap up with at the end here?

Clark

Neighbors: No, I just think, um, keep that StocksToYou scenario in mind. Um, bottom line is the corn and beans are on totally different platforms right now as we've you know, emphasized quite a bit with the scenario of the beans and the corn and this acreage switch. And it's going to take the market some time, especially through this report this week, to get a better basing value of, you know, where this market needs to be. So it's almost like it's changed the decision-making on both ends, you know. There's probab— you know, you feel like after that report there's going to be quote-unquote better selling opportunities on the beans, you know, in the near term, if you will, than the corn. And, uh, again, like you said, insurance is going to be key and, you know, how that all plays out, especially in the corn going forward, Paul. Okay, okay.

Paul

Neiffer: Well, again, Clark, thanks a lot for being on the, on the Ag View Pitch today, the market report for the weekend, and we thank you for your time.

Clark

Neighbors: Thank you, Paul. Have a great weekend.

Paul

Neiffer: Again, this was the Ag View Pitch Market Report for the weekend. And this is Paul Yeager, your host, signing off.